Oil falls below $70, fuel demand worries resurface

Oil prices fell by more than $1 below $70 a barrel on Tuesday, giving up earlier gains as doubts resurfaced over the pace of economic recovery and any rise in fuel demand.

U.S. crude was down $1.50 at $69.11 by 1356 GMT (9:56 a.m. EDT). London Brent crude fell $1.30 to $72.20.

Oil was due a small pullback as it has been so sentiment driven over the past few weeks -- fundamentally there's not a great deal to hold it up there yet, said Andrey Kryuchenkov, analyst at VTB Capital in London.

The dollar rose against the euro and U.S. stock index futures fell to session lows on Tuesday weighed down by financial shares and by caution ahead of the Federal Reserve's two-day policy meeting.

A stronger dollar makes dollar-denominated commodities such as oil less attractive to non-dollar buyers.

Earlier, news that imports to China had surged by 42 percent in July to a record 4.62 million barrels per day gave oil prices a lift.

But after the open of the U.S. market, financial factors came back to the fore.

I think the market will continue to test resistance and support levels in the recent range until further evidence surfaces that addresses the alleged recovery's sustainability, said Mike Fitzpatrick, vice president at MF Global in New York.

FUNDAMENTALS

OPEC left its forecasts for world oil demand unchanged in its monthly report with consumption expected to fall 1.65 million bpd in 2009 before rising by 500,000 bpd in 2010.

This was regarded as neutral for the market and analysts are braced for the U.S. government's Energy Information Administration (EIA) monthly report, which they say will offer further insights into future supply and demand.

The focus is going to be definitely on the demand and people will look for green shoots and upwards revision, Petromatrix analyst Olivier Jakob said.

The United States last Friday reported the first fall in the unemployment rate for 15 months, prompting some oil analysts to anticipate a faster economic recovery, which could revive oil demand.

Analysts will also be watching weekly American Petroleum Institute inventory data late on Tuesday, followed by weekly U.S. government data on Wednesday.

The weekly data is expected to show gasoline stocks will have dropped by 1.5 million barrels in the week ending August 7.

Distillate stocks, including diesel, were also seen lower, but overall crude stocks were expected to fall as refineries cut run rates.

For much of this year, the oil market has taken its cue from rallying equity markets and these have helped to tow prices up from lows of beneath $33 a barrel last December.

(Additional reporting by Maryelle Demongeot and David Sheppard in London; Editing by Keiron Henderson and Sue Thomas)